A real estate loan is a special form of loan that is expressly used only for the construction or purchase or renovation of buildings. The banks also make a distinction between private and commercial real estate loans due to the risk assessment. In the case of private loans, the borrower is at the same time (co-) user or landlord of the building, while in commercial real estate financing the buildings to be financed belong to business assets and are used for business purposes.

These features distinguish a real estate loan:

1.) It is earmarked. This means that the real estate loan may only be used for the purpose of building or buying as well as renovating houses or apartments.

2.) It is usually agreed with fixed debit interest. Irrespective of the development of lending rates on the market, the agreed loan interest rate applies to the property loan over the entire term of the loan.

3.) While consumer loans are usually granted by the banks without the deposit of collateral (if the borrower can not repay the loan, the bank can only try to collect the outstanding payments only in the context of a garnishment), the financed property remains over the entire term of the real estate loan in the property of the bank. If the borrower can no longer pay, the bank is covered by a contracted mortgage or mortgage and can sell the property. Due to the high level of security in the case of real estate loans, the lending rates for these are more favorable than for normal consumer loans.

4.) In the normal installment loan, the loan is normally fully repaid after the pre-agreed term; In the case of a real estate loan, a so-called follow-up financing is already planned from the beginning: at the end of the agreed term of the real estate loan, a considerable amount is still open, which must be repaid. For this purpose, the borrower arranges follow-on financing, either at the bank where he took out the original loan, or at another provider.

Who needs a real estate loan?

For a real estate loan, all those consumers are in question, who want to build, buy or renovate a property for their own needs or as an object for renting for retirement. Since only a minority of these consumers can raise the required amount for real estate financing entirely from own funds, the real estate loan serves to finance the gap between equity capital and the required construction or purchase price.

Where do you get a real estate loan?

The traditional providers of private real estate loans are banks such as major banks, savings banks and building societies. Many borrowers turn to their house bank for a real estate loan, but in principle, such a loan can be obtained cheaply from other providers, regardless of the connections to the house bank. In recent years, insurance companies and specialized mortgage lenders have also entered the real estate loan business.

Also some direct banks offer this financing. In addition there is the (Intrasavings Bank), which does not conclude a contract with the customer directly, but participates through its lending bank, as well as state promotional institutions. Since many providers are represented on the market, the conditions for customers have become cheaper. But the market is also confusing, which makes accurate comparisons necessary.

Even if real estate loans are well secured for the banks through the registered mortgage, the usual check of the creditworthiness of the customer takes place, of course, before the loan is granted. Added to this is the examination of the object. The bank thus rates itself the object to be purchased, to be renovated or to be built, since this is precisely to serve as a hedge of the loan amount.

The object must therefore already be known before the conclusion of the loan. The examination of the income situation takes place over the last salary statements and similar documents. In addition, it will be examined which equity capital the borrower is able to raise.

These criteria are particularly important in a real estate loan

An important role is played by the share of equity, ie the sum that the borrower can contribute from his own resources (bank or savings accounts, own construction work, securities and more) at the purchase price or construction price. The equity ratio should be at least twenty percent for sound financing. The higher the equity interest, the more favorable the borrowing rates for the loan. Meanwhile, some providers also offer a “full financing”, which requires no equity.

However, this model is associated with very high interest rates and also entails a not inconsiderable risk for the borrower. It is especially for young people in question, although already earning above average, but still could create no assets.

Another important criterion for real estate loans is interest rate fixation. This fixes the borrowing rate for the loan over several years. Thus, planning security for the borrower is created, because the borrowing rate always remains the same, regardless of the development of the general interest rate level during the term.

The most common repayment models are the annuity loan on the one hand (the repayment is credited to the loan amount, which gradually reduces the interest charge) and the maturing loan (the monthly repayment only returns the interest, at the end of the term, the total amount outstanding – for example through a parallel savings contract or a home savings contract – repaid).

If you want to be able to spontaneously make special payments during the term of the loan in order to repay the loan more quickly, you should pay attention to the terms of the special repayments. Many contracts require high prepayment penalties for such special repayments or allow only a certain number of special repayments.

After the end of the term of the real estate loan (usually between five and fifteen years) is often still a residual amount open, for which it requires the so-called follow-up financing. This can still be done with the lending bank. However, it may also be worthwhile to change the provider and have the follow-on financing provided by another bank.

Even small deviations in the borrowing rate can bring big savings due to the high sums and long maturities. However, the change is also associated with costs (for example for the transfer of the mortgage). It may be worth renegotiating with the original bank, which will eventually approach the better terms of the new provider.

A big help can be state subsidies. These are available in the form of preferential loans, subsidies or subsidies, for example for the barrier-free or energy-efficient renovation of the home or apartment. Best known is “Residential Riester”, actually home ownership pension. Anyone who has already saved Riester amounts can use them completely for the property. If you do not yet have a Riester contract, you can use it for borrowing.

The Riester allowances are then paid directly into the loan. Intrasavings Bank not only promotes the purchase and construction of houses, but also their modernization and renovation. The federal government, the federal states (to promote certain regions or cities) and some municipalities also offer funding opportunities.

These grants must be applied for before commencing the (re) construction or purchase. It is therefore important to find out in advance about these possibilities. The lending bank is here to advise – for measures of the Intrasavings Bank, it is anyway the first point of contact, since the Kreditanstalt für Wiederaufbau (the world’s largest promotional bank) uses the “house bank principle” and the review of collateral and creditworthiness before the bank Place leaves.

Intrasavings Bank’s funding is intended to promote the creation of home ownership as well as the energy-efficient refurbishment of buildings and the conversion to renewable energies. Those who purchase new, energy-efficient property can apply for a repayment subsidy. Anyone wishing to retrofit property in an energy-efficient manner can apply for subsidies for individual measures.

A real estate loan is a long-term commitment and, for most people, probably the biggest issue of their lives. Therefore, it is important to think in advance about your own financial position (for example, the available equity, the monthly costs incurred and the possible monthly installment to be paid) in order not to take on the loan. On the other hand, one should definitely use a loan calculator to compare the large number of offers on the market.

The differences quickly make up several thousand euros. Since the best conditions offered on the Internet are often granted only to extremely solvent customers, one should however make deductions of about half a percentage point in the comparison. With a good overview of the possible models and offers you are also in an excellent bargaining position to negotiate a good real estate loan at your own house bank.